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Thursday, December 2, 2010

Phil Flynn: Is Europe Too Big To Fail?

Forget about all of that stellar manufacturing data and jobs data. Ok sure, that may have helped rally the oil yet it was the story that the U.S. stands ready to bail out Europe that sent the dollar falling and the oil on a second wind rally. Reuters News reported that an unnamed US official said the U.S. was prepared to support the European Union’s rescue fund through the International Monetary Fund and the largest contributor is the U.S.. The official said the spread of contagion through the euro region would be a problem for the global economy and because of that I guess the U.S. printing presses are ready to roll.

In other words, it looks like the U.S. just said that we are going to make good on all of Europe’s bad debts and make sure that European citizens can retire when they are 50. Ok maybe they did not say that exactly and they defiantly did not say anything about Europeans retiring when they are 50.( Maybe it was 60) And later the story was denied but don’t you tell that to the investment world because once you make a statement like that it is hard to take it back. Based on the weakness in the dollar after the story broke, it seems the market is convinced that come hell or high water the U.S. will back Europe in their time of economic need.

If the market believes it then there is a lot of pressure on the IMF and the US to make it so. If you don’t think so then you have forgotten the lessons of Fannie and Freddie. They were entities that were supposed to be independent but investors like the Chinese were led to belive that the government sponsored entity was backed by the full faith and credit of the good old American taxpayer. The same taxpayers that we have found out have backed a wide......Read the entire article.